Billionaires form rental behemoth

Merger creates largest single-family landlord in U.S. with 82,000 homes.

It was a simple phone call between two real estate billionaires that led to the formation of a behemoth in the house-rental industry.

Property investor Barry Sternlicht called Jon Gray, head of real estate for Blackstone Group, in the spring proposing a combination of Starwood Waypoint Homes, of which Sternlicht is chairman, and Invitation Homes, majority-owned by Blackstone. The companies announced the $4.3 billion merger Thursday after creating a company that will be the largest U.S. single-family landlord, with 82,000 homes.

The move further consolidates the still-young industry for corporate ownership of house rentals, leaving two large public companies. Private equity firms and hedge funds, led by Blackstone, spent hundreds of millions of dollars in the aftermath of the housing crisis to buy homes at distressed prices, building businesses that eventually were big enough to go public. Now, with property values soaring and foreclosures slowing to a trickle, landlords are combining to gain scale and hone their operations.

“This merger gives the industry more credibility now that there’s a more than $10 billion company, bigger than some apartment real estate investment trusts,” said Jade Rahmani, an analyst at Keefe, Bruyette & Woods Inc.

Blackstone’s 70 percent stake in Invitation Homes will be reduced to 41 percent of the combined company, according to the firm.

Invitation Homes and Starwood Waypoint say their transaction is expected to create annual savings of $45 million to $50 million. The new company, which will keep the Invitation Homes name and will be based in Dallas, will have about 5,000 homes in each of its markets and an 83 percent overlap, with a concentration in places such as Atlanta, Southern California, Phoenix and South Florida. That’s necessary when taking into account the costs associated with managing scattered site properties.